What Happened:
Shares of electronics retailer Best Buy (NYSE:BBY) jumped 12% in the morning session after the company reported first quarter results that beat analysts' gross margin and EPS expectations. On the other hand, its revenue missed as its same-store sales fell by more than projected (a 6% drop vs an estimated 5% drop). However, guidance was more encouraging, with the CFO admitting that the business is already trending towards the midpoint of the annual comparable sales guidance. In addition, the profitability update was even more impressive, with the company adding, "We expect to deliver profitability at the high end of our non-GAAP operating income rate guidance due to a higher gross profit rate in our membership and services offerings." Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track.
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What is the market telling us:
Best Buy's shares are somewhat volatile and over the last year have had 2 moves greater than 5%. But moves this big are very rare even for Best Buy and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 9 months ago, when the stock gained 5.3% on the news that the company reported second quarter results that beat analysts' revenue and EPS expectations. Guidance was more mixed, with full year same-store sales and revenue guidance lowered from the company's previous outlook. However, Best Buy's profitability outlook is better, resulting in a higher full year operating margin guidance compared to previous. Perhaps the most positive, though, was the CEO's commentary on the demand environment. "...we continue to expect that this year will be the low point in tech demand after two years of sales declines. Next year the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles and the normalization of tech innovation." Overall, this was a mixed quarter for Best Buy, but the commentary is a bright spot.
Best Buy is up 3.5% since the beginning of the year, and at $80.13 per share it is trading close to its 52-week high of $84.95 from July 2023. Investors who bought $1,000 worth of Best Buy's shares 5 years ago would now be looking at an investment worth $1,231.
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